Most contracts include a variety of unique terms, but there are certain inclusions that are common in various contracts. Restrictive covenants are a standard inclusion in many employment contracts, as well as agreements with vendors, service providers and others who may have access to information about how a company operates.
Restrictive covenants are inclusions in contracts that limit certain behavior both during a contractual relationship and after its termination. Common restrictive covenants include non-disclosure agreements, non-compete agreements and non-solicitation agreements.
When a business discovers that another party has violated restrictive covenants included in a contract, the company may want to take legal action. What are the potential solutions available when litigating over a violation of restrictive covenants?
1. The enforcement of penalty clauses
Many restrictive covenants include language that imposes specific consequences in the event of a violation. There may be a flat penalty fee assessed or a daily penalty that amasses the longer the issue continues.
In some cases, penalty causes can include financial consequences worth six figures or more. Businesses may ask the courts to enforce the terms included in a restrictive covenant by requiring that the party who breached the agreement pay those penalty amounts.
2. An award of damages
The violation of a restrictive covenant can cause direct economic harm to a business. If a former employee poaches clients or makes disclosures about trade secrets on social media, the company may see a significant drop in revenue.
Provided that there is evidence of economic harm, the organization seeking to enforce a restrictive covenant can ask a civil court judge to award damages in consideration of the harm caused by the breach of the agreement.
3. An injunction prohibiting future violations
In some cases, a judge may recognize that the previous breach is not the only risk. If additional solicitation, competition or disclosures are a concern, then a judge could issue an order specifically prohibiting additional violations of the agreement in the future. Court injunctions can lead to contempt of court allegations and other penalties in addition to the financial consequences imposed due to the breach of the agreement.
Pursuing contract litigation after uncovering evidence that another party violated a restrictive covenant can be a worthwhile endeavor. Organizations that enforce their contracts can prevent future breaches and reduce the harm caused by the misconduct of others.
